Since the outbreak of the global financial crisis, governments and policy makers have intervened in markets massively, and in multiple forms – injecting liquidity, recapitalizing banks, providing fiscal stimuli, and buying out doubtful bonds to plug holes in the balance sheets of financial firms. The former Whole Time Member of Securities and Exchange Board of India (SEBI), Prashant Saran, shares his insights with Gateway House’s Samir N. Kapadia on India’s growth agenda.
Q. What do you make of the Reserve Bank of India’s (RBI) recent comments regarding the country’s fiscal health, specifically their concern with excessive government spending?
There is nothing new about the comments from the RBI. They have been asking the government to take measures to control fiscal deficits and institute reforms for decades. For instance, Governor Chakravarthy Rangarajan advocated for the passage of the Fiscal Responsibility and Budget Management Act in 2003 with defined targets to reduce the fiscal deficit and institutionalize financial discipline. The Tarapore Committee Report has also made recommendations to lower fiscal deficits to enable capital account convertibility. None of these targets have been met even though the central bank’s position has been clear over the years.